We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds' top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Franklin Financial Network Inc (NYSE:FSB).
Franklin Financial Network Inc (NYSE:FSB) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 4 hedge funds' portfolios at the end of June. At the end of this article we will also compare FSB to other stocks including Landmark Infrastructure Partners LP (NASDAQ:LMRK), New Frontier Corp (NYSE:NFC), and Insteel Industries Inc (NASDAQ:IIIN) to get a better sense of its popularity. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Unlike other investors who track every movement of the 25 largest hedge funds, our long-short investment strategy relies on hedge fund buy/sell signals given by the 100 best performing hedge funds. Let's check out the new hedge fund action regarding Franklin Financial Network Inc (NYSE:FSB).
What does smart money think about Franklin Financial Network Inc (NYSE:FSB)?
At Q2's end, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards FSB over the last 16 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the most valuable position in Franklin Financial Network Inc (NYSE:FSB). Royce & Associates has a $10.6 million position in the stock, comprising 0.1% of its 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, with a $0.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers that are bullish include Israel Englander's Millennium Management, Ken Griffin's Citadel Investment Group and .
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Arrowstreet Capital. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Renaissance Technologies).
Let's now review hedge fund activity in other stocks similar to Franklin Financial Network Inc (NYSE:FSB). We will take a look at Landmark Infrastructure Partners LP (NASDAQ:LMRK), New Frontier Corp (NYSE:NFC), Insteel Industries Inc (NASDAQ:IIIN), and Farmers National Banc Corp (NASDAQ:FMNB). This group of stocks' market caps match FSB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LMRK,4,2441,-1 NFC,12,56016,-1 IIIN,6,44459,-2 FMNB,6,12608,1 Average,7,28881,-0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $12 million in FSB's case. New Frontier Corp (NYSE:NFC) is the most popular stock in this table. On the other hand Landmark Infrastructure Partners LP (NASDAQ:LMRK) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Franklin Financial Network Inc (NYSE:FSB) is even less popular than LMRK. Hedge funds clearly dropped the ball on FSB as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on FSB as the stock returned 8.6% during the third quarter and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.